Complicated issues surrounding taxation for Second Life business activity have come to the fore recently, including VAT tax for Europeans and Congressional hearings on the issue for Americans. Non-profit and charitable organizations also need to familiarize themselves with the relevant tax issues that might apply to their in-world activities. It’s simply short-sighted to think that tax issues won’t affect not-for-profits even if they are tax-exempt in their own countries. These are the salient issues that come to mind:
- Tax Deductions for Contributions: Are contributions via Linden Dollars tax-deductible? Is your non-profit able to provide a receipt to the donor, based on their country of origin and in line with your non-profit’s local tax laws?
- Tax Reporting for Contributions: Is your non-profit prepared to report to your local tax authority donations that are received in Linden Dollars? In the US context, will these appear in your 990, which is a publicly accessible tax document that all 501(c)(3) not-for-profits have to prepare?
- Taxable Income for Employees and Consultants: Is your organization or are any of your employees or consultants reporting income received in-world? Are their avatars receiving donations and funneling them to the non-profit? How is this being reported and handled transparently?
- Grant Reporting: As philanthropic institutions seek to invest in non-profit activity in SL (i.e. the Foundation for Rich Content), how is this income reported and tracked?
- In-world Assets Valuation: How are in-world assets, i.e. buildings, sims, islands, virtual goods considered when reporting on the assets of the organization? If these are donated, how do you apply a value to them when reporting in-kind donations?
IANATL (I am not a tax lawyer), so there are certainly some other salient issues I have not thought of. It would probably be worthwhile to schedule a talk at an upcoming Non-profit Commons meeting on tax issues for non-profits in SL, perhaps with a tax professional from H&R Block or other in-world tax advisors.